Outcry over EU sugar proposals

African, Caribbean and Pacific sugar producing nations have cried foul over the recent European Union (EU) proposal to slash the support price for white sugar by 39 percent by 2007, saying the requirement could “destroy” their sugar industries and have an adverse effect on energy resources. The European Union Commission last month proposed far reaching reforms to the Common Market Organisation for sugar, aimed at enhancing the competitiveness and market orientation of the EU sugar sector to the benefit of EU countries. A statement issued by the EU commission said part of the objective of the new regime was to ensure a long-term future for the EU sugar sector and strengthen the bloc’s position in the current round of world trade talks.

It said the new system would replace the current 40 year-old structure, and will continue to offer preferential access to Europe’s sugar market for developing countries at attractive prices. The Commission reform proposals include a two-step cut totalling 39 percent in the price for white sugar; compensation to farmers for 60 percent of the price cut, which would be linked to the respect of environmental and land management standards and added to the Single Farm Payment. Other proposals include a voluntary restructuring scheme lasting four years to encourage less competitive producers to leave the sector and the abolition of intervention. The ACP assistance plan will earmark EUR 40 million for 2006 while paving the way for further assistance.

However, the African, Caribbean and Pacific (ACP) group states have voiced massive concerns over the new proposals to cut funding into non- European sugar production, which they say will drastically affect their own production. Large-scale sugar producer Mauritius has already said that the new EU plan would "crush" its own production. The country has a 491 000-tonne quota under the protocol, which represents about 95 percent of its total exports. “If the European Commission's proposal is adopted without any change, there will be a shock that will destabilise the entire island,” Jean-Noel Humbert, the director general of Mauritiu's Chamber of Agriculture, told a local newspaper recently.

“This is a tragedy for us,” Agriculture Minister Nandcoomar Bodha added. Should Mauritius’ sugar cane industry cease to become viable, the country's energy projects would also suffer. At present, the sugar industry generates half of the country's electricity requirements under the country's Bagasse Energy Development Programme through its combined coal and bagasse Bellevue power plant. Other Southern African countries are also likely to be seriously affected, albeit not in the same proportions. Analysts believe Swaziland will be the second worst affected country, as it currently has a 117 845-tonne quota under the protocol which accounts for over 20 percent of its total output. Malawi, which has a 20 824 tonnes quota under the protocol, would lose out on an estimated 10 percent of its production, while Zimbabwe, which currently has a 30 225-tonne quota would lose revenue from over seven percent of its total output. Tanzania, which has a 10 186 tonnes quota would lose out on less than five percent of its output, while Zambia and Mozambique would also suffer considerable losses.

Reports from South Africa have indicated that the far-reaching proposed sugar reforms would affect local milling companies Illovo and Tongaat- Hulett Sugar according to their exposure to the European market, the companies disclosed last week. South African media reports said Illovo had acknowledged that it would be hurt "in the short term" as it produces about 50 percent of its sugar in lesser developed countries (LDCs) outside South Africa and exports about 139 000 tonnes into Europe. At full production and in a normal rainfall year, 40 percent of Tongaat-Hulett Sugar's production is sold on the "dumped" world market, which is likely to experience upward pressure from the proposals. Only 4 percent of Tongaat-Hulett Sugar's production is sold into the EU's preferential market, which comprises 3 percent in terms of the African, Caribbean, Pacific (ACP) programme and 1 percent in terms of the “Everything but Arms” (EBA) initiative.

“Tongaat-Hulett Sugar’s exposure to the EU market is via its operations in Swaziland, Zimbabwe and Mozambique. The South African industry is not a beneficiary and our operations in South Africa are likely to benefit from world sugar trade reform via a higher world market sugar price,” said Bruce Dunlop, managing director of Tongaat-Hulett Sugar. Illovo managing director Don MacLeod said the company would still supply existing markets in Europe at the reduced prices, which, at current exchange rates, are about $400 a tonne. "In addition, the group will continue with its marginal expansion plans at its operations outside South Africa to take advantage of the increased access into Europe when duties for EBA sugar reduce to zero in 2009," Macleod said. He said Illovo continued to support the least develop countries' standpoint of managed exports of sugar into Europe at a lesser price of reduction than had been mooted.

Analysts have predicted a short-term market shake-out of sugar suppliers to the EU — and a lot of complaints from some of the most subsidised producers, especially among ACP countries. "However, South Africa is in a reasonable position as it has a fairly competitive industry and the players have indicated that they believe they will be in a relatively neutral position," one market watcher said. Besides the direct negative effect it is not guaranteed that ACP countries would be able to secure a larger access to the EU market at lower prices under the Special Preferential Sugar (SPS) agreement, since the reform will not necessarily lead to a reduction in EU production. On the contrary, the abolition of the maximum supply needs ceiling will effectively lead to the demise of the SPS scheme, which presently allows access for around 290 000 tonnes. This would have important implications for non 'Least Developed' Southern Africa sugar exporters who are significant beneficiaries of this scheme and who export a relatively high percentage of the total sugar exports to the EU under the SPS scheme.

The EU Commission has acknowledged that there will be "potential losers from the development in the EU sugar market" amongst developing countries, recognising that the EU will need to look at how it "can best contribute to the necessary and inevitable adjustments in sugar production in ACP countries". Coming on the eve of the G8 meeting that had Africa high on its agenda, the EU Commission's initiative looked unfortunate. In the ACP's view, the reform could have been brought about less brutally. “The solution for ACP states must comprise a lower price cut spread over a longer timeframe supported by accompanying measures that will ensure the long term sustainability of the sugar sector,” Zambia's Deputy Minister of Finance and National Planning, Felix Mutati said.